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Guest Commentary: A boost to workers and local economies

By Christine Owens

Posted:
01/05/2011 01:00:00 AM MST

As the incoming Congress prepares for debates over how to promote jobs and economic growth while tackling the deficit, they might do well to look at Colorado. On New Year's Day, as a result of a 2006 state ballot initiative, Colorado's minimum wage rose from $7.24 to $7.36 per hour — an increase that will boost the economy and workers' wages without increasing government spending.

Colorado is one of 10 states that index their minimum wages to inflation so that the wage keeps pace with the rising cost of living. Around 57,000 workers in Colorado, and more than half a million workers in states across the nation, received a small but much-needed bump in pay on Jan. 1.

As Colorado has recognized, a minimum wage that rises annually helps families make ends meet as costs for basic necessities rise, while benefiting local businesses that rely on strong consumer demand. Any increase puts more money into the pockets of low-income workers, who will spend it immediately in their local communities on food, fuel, clothing and other goods and services. The Economic Policy Institute estimates that last year's increase in the federal minimum wage (from $6.55 to $7.25 per hour) generated $5.5 billion in new consumer spending across our economy.

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The alternative to Colorado's minimum wage policy — as 40 states that do not have an indexed state minimum wage have seen — is a minimum wage that actually declines in real value every year as the cost of living rises and the wage floor stays put. Without the basic protection afforded by an indexed rate, minimum-wage workers are at the mercy of the political winds, receiving raises only when legislatures can get their acts together to pass an increase. Indeed, in the past 30 years, Congress has acted only three times to raise the federal minimum wage. The effect has been a dramatic decrease in its real value: At its peak value in 1968, the federal minimum wage was worth more than $10 per hour in today's dollars.

Critics will no doubt decry the 12-cent increase in Colorado's minimum wage by claiming that we can't raise the minimum wage without cutting jobs. It's a broken record that those bent on tearing down the minimum wage spin every time there's talk of an increase. But two decades of solid economic research show that claims of job loss simply aren't true. The latest study, to be published in April 2011 in the journal Industrial Relations, finds that minimum wage increases that occurred during the last three recessions boosted workers' income without causing unemployment.

Of course, even the increase, a full-time minimum-wage earner in Colorado will still earn just $15,308 a year, hardly enough to survive, much less raise a family. While the state is to be commended for acting to stop the decline in the real value of the minimum wage, it still has a long way to go before its minimum wage catches up to what the federal minimum wage floor would have been — more than $10 per hour — had it kept pace with inflation over the past 40 years.

When Franklin Roosevelt signed the nation's first minimum wage bill into law, at the height of the Great Depression in 1938, he emphasized that a strong wage floor is "an essential part of economic recovery." Those words ring true today. If we've learned anything from this recession, it's that relying on rampant financial speculation and irresponsible lending practices to generate spending — rather than investing in good wages that put real money into consumer's pockets — is a recipe for disaster.

This week, Colorado's minimum-wage earners have some cause for cheer. But this is just a first step towards restoring the wage floor so that people who work for a living are able to make a living from work.

Christine Owens is executive director of the National Employment Law Project.